Challenging the dominance of the Big Four banks: expert reaction

18th July 2014

Consumer champions, challenger banks and comparison sites have implored the competition watchdog to bring an end to the monopoly within the current account market tin order to encourage product innovation and foster consumer trust.

News the Competition and Markets Authority (CMA) is considering launching a full investigation into the banking sector and dominance of the ‘Big Four’ banks, made up of Barclays, Lloyds, RBS and HSBC, was welcomed by organisation who want to seize on the opportunity as a catalyst for real changing in banking.

Citizens Advice Bureau chief executive Gillian Guy said too many consumers were paying ‘over the odds’ for current accounts and called for the CMA to set a ‘minimum set of standards for basic bank accounts’.

‘A lack of competition in current accounts could mean people are paying over the odds for overdraft and other add-ons. Banks risk being complacent that consumers won’t switch, meaning improvements and development to accounts are few and far between. Customers need better current accounts and an investigation into competition is an opportunity to address this.’

Guy added that many people were locked out of the current account market altogether and that some basic bank accounts did not have essential functions such as direct debit facilities.

‘There needs to be a set of minimum standards for basic bank accounts which makes sure those who need these accounts get them and the accounts come with the essentials for day-to-day banking,’ she said. ‘Last year I called on banks to up their offers to customers by providing services that can save customers money, including identifying deals on the things they buy regularly. While there has been some progress, there is still room for more inventive banking services.’

Lack of impetus to change

At the moment the banking industry has no impetus to increase competition because consumer inertia means very few people actually switching account each year, despite the launch of a the seven-day switching guarantee that makes it easier and more transparent to change banks.

According to banking analyst David Black of Consumer Intelligence, just 3% or 4% of people switch each year, although there has been more notable increases of late with Santander and Nationwide building their share of the current account market and challenger banks like TSB entering the fray.

Black blamed the difficulty of comparing costs as a barrier to change but noted many people are happy with their bank.

‘One of the issues that challenges consumers is the difficulty in comparing overdraft costs because of the vast array of different overdraft tariffs and structures in evidence,’ he said. ‘But it’s worth noting that almost two-thirds of people don’t want to switch because they are happy with their existing account. People need a reason to switch and, barring a seismic change such as free-in-credit banking disappearing, this will typically be driven by either actively seeking a better deal or by dissatisfaction.’

Understanding switching

Post Office director of financial services Nick Kennett said the switching guarantee had gone some way to address competition issues but more needs to be done, including the introduction of portable bank accounts.

‘Recent measures, such as the introduction of the…seven-day switching guarantee, have gone some way to providing people with the confidence to switch provider,’ he said. ‘The Financial Conduct Authority’s plan to explore the issue of portable bank account numbers later this year is another step in the right direction. However, further work is needed to ensure they understand they have the choice to shop around and can rely upon the switching process.’

Dan Plant, consumer finance expert at comparison site MoneySuperMarket said switching bank accounts was yet to become the norm.

‘Switching current accounts is still rarer than switching energy or credit cards, however, so if the inquiry can make this easier that would be the real victory. Consumers still need to vote with their feet to keep the momentum going,’ he said.

‘Encouraging more competition within financial services will ultimately herald a better deal for consumers. The more choice there is, the easier people should find the right fit for their modern day banking needs.’